Are we in a real estate market recovery?

Real Estate Boys: I keep reading that the real estate market is booming again. Time magazine, the newspaper from our north, TV and radio news are all reporting to get “in now, the market is heating up across the nation.” Wasn’t it just a short year ago you Boys, and it seemed everyone else, was reporting that maybe we haven’t seen the bottom yet? Then in late in 2012, “Well, we’ve bottomed out, but the road ahead is a long uphill ride.” Have we recovered that fast? What is the market doing?

— Getting Better?

Getting Better: Lloyd and I are the fools on the hill. HELP! You are right on your question. Last year newspapers, TV and radio and yep, even The Real Estate Boys, Lloyd anyway, were predicting a very soft recover and slight price increases over the next five years. That’s why nobody should listen to us (TV, radio, newspaper and us). All we do is sit here and guess what is going to happen next. It seems that Rob, my CPA who also manages my small retirement account, doesn’t even listen to me. I told Rob to sell everything a few weeks ago when I thought the market had hit the top. Five days later I called him with my head in hand and said I guess you should never listen to me again. Rob just smiled and said, “I didn’t listen to you.” Back to the original subject, dear readers.

From the Real Estate Boys’ side, I believe we said this market is strange and that the market really should be hot because of low interest rates and shortage of homes on the market — the old supply and demand rule in economics. But yes, we did say the rise in prices would be slow and so far that prediction has proved WRONG. So is it a boom or a bust looking to happen?

Just like the early 2000 market, the prices started to increase and then after of few years of a steady raise in 2003 through 2006, prices seemed to go up daily. Lloyd and I went out on a listing appointment just the other day and this would be the third time we’ve met with the seller. The last time we had met was late November or early December and we felt the price for his home was around $225,000. At our most recent appointment, we felt the price should be around $295,000. That’s a 30 percent increase in just five short months.

I can hear you. “Why; why have prices suddenly gone north so fast?” Well, the answer in our opinion is the super low interest rates are still making it cheaper to buy than rent, the lack of inventory certainly has aided in the rapid increase and maybe the pent-up demand to make a move. We’ve been in a down market for six years now and many people have been waiting to buy since they lost their home to short sale or foreclosure and they can now enter back into home ownership. That’s quite a threesome to help the market rocket up. The scary thought is, if this buying surge continues and the market continues to make prices rise, our labor force here in the Central Valley won’t support the huge sales prices like the last go round. If prices continue to go through the roof, we may have a repeat of 2006.

One sector of our bubble, which is not yet ready to jump into the buying frenzy, are the lenders. While there are some lenders who are not having any problems getting appraisals those “too big to fail” lenders are keeping a tight rein on their lending purses and many homes are not getting the appraisal needed to get the loan and close escrow. There are simply not enough closed sales yet to show the appraiser that values have risen to what the sales are presently. I know appraisers will call me and yell at the next statement, but I can take the calls. Prices per square foot, on El Camino in Turlock have gone from $100 per square foot last October to $125 at the end of the year, to just this week I saw a new closing at $168 per square foot. Again, all within a block of each other and all in pretty darn good condition. Cash buyers seem to be one of the reasons the prices are going up. Once a cash buyer closes escrow that sales price raises the bar to the next level.

So, we keep coming back to the original question. Is it a good bubble or a water balloon ready to burst? Larry and I feel it is still a little too early to tell. But we feel strongly that some actions need to happen. Actions such as the Feds raising the interest rates a bit, just enough to slow this red hot market down for a short period of time. Maybe the “too big to fail banks” should be listing some of their foreclosed properties, the shadow inventory, so we have at least a fair amount of inventory to share with our buyers. Instead, the “too big to fail” are selling in bulk to hedge funds or REITs (real investment trusts) — thousands of homes at a time.

To sum up, if the market doesn’t show some adjustments in the next few months in interest rates and inventory, that bubble with all the pretty colors floating around may actually be a huge water balloon that will pop just when we least expect it and rain down on our parade and we’ll be back to a hard day’s night. But then, Lloyd and I are just guessing and nobody listens to us. But things are getting better all the time.

— A little about us, Lloyd is a retired farmer of 27 years and a realtor for about 10 years. Lloyd is an active member of the Central Valley Association of Realtors and sits on the CVAR Board of Directors. Lloyd is a long time member of CVAR’s Master Club for his sales production.

Larry has been involved in Turlock real estate for 30 years and has been a broker for almost 27 years. He is also active in CVAR activities and is a past president of CVAR. If you have questions please call Lloyd at 531-4853 or Larry at 484-4216. E-mail questions for future columns to: lrblackman@earthlink.net or lndrumbeck@aol.com.